Medical debt, collections and the fees you’ve likely never heard of
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EDITOR’S NOTE: This is the fourth and final part in a series of stories about medical debt and Medical Recovery Services.
Here are the previous installments:
— Man fights 5-year legal battle with debt collection company after doctor’s error
— How Medical Recovery Services takes care of business
IDAHO FALLS — The medical bill was for $518.80. At least, that’s how much she owed in the beginning.
In 2013, Penny Siler was a local school bus driver making about $500 a month and caring for her disabled husband, according to court documents. Little did she know her case would end up in the Idaho Supreme Court — and the ruling would be against her.
It’s not clear why the original bill wasn’t paid or what it was for, but it ended up at Idaho Falls-based Medical Recovery Services. MRS unsuccessfully tried to collect on the debt, but eventually a lawsuit was filed against Siler seeking the money.
When a debt collection lawsuit is filed, a defendant has 21 days to respond. On day 22, if no response has been received, a magistrate judge can rule for a default judgment in favor of the collection agency.
This case was just like that. Siler didn’t show up or file a response, and a judge entered a default judgment against her for $1170.93. That sum includes the original debt, a $350 prejudgment attorney fee, prejudgment interest and filing fees.
Michael Satz, a University of Idaho law professor who has practiced bankruptcy and consumer finance law, says default judgments have become the norm in debt collection.
“Almost all of them end up (in default) – it’s got to be something like 90 percent of them,” Satz tells EastIdahoNews.com. “A lot of these debtors don’t have much in the first place … and particularly when you’re talking about medical debt, there’s often a lot of creditors in line, and the person who owes just doesn’t have the finances.”
Satz also says the vast majority of the public has no idea how the court process works, and that’s another reason there are so many default judgments.
We reached out to Siler for background on the case, but she did not respond to EastIdahoNews.com for comment.
As a result of the judgment, a writ of execution was issued. That’s lawyer-speak for the court getting the local sheriff to garnish your wages at a bank or through your employer.
In a typical debt collection case, this might be the end of it. You owe money, a judge says you had to pay the money, and a sheriff’s deputy is forcing a bank or your employer to collect the money. Generally, you can pay the debt, work out a payment plan, or the garnishment will take up to 25 percent of a person’s disposable income until the debt is satisfied, according to local bankruptcy attorney Ryan Farnsworth.
This case was unique in that the writ was returned unfulfilled. Siler was not making enough money for a garnishment to be issued. Federal law mandates someone must be making at least $217.50 a week to be garnished, according to the U.S. Department of Labor Employment Standards Administration.
Despite the income issue, Siler worked out a payment plan with MRS and agreed to pay $10 monthly. In court documents, Magistrate Judge Robert Crowley said Siler faithfully made payments between December 2013 and March 2015. That’s when she called MRS and asked about a pay-off figure.
She was told the payoff amount would be $1,224.88. The same day, she went in and paid the amount in full. She assumed the debt was done.
Not so fast
Six days later, MRS attorney Bryan Zollinger filed an application for supplemental attorney fees under Idaho Code 12-120 (5).
The code reads, “In all instances where a party is entitled to reasonable attorney’s fees … such party shall also be entitled to reasonable post-judgment attorney’s fees and costs incurred in attempting to collect on the judgment. Such attorney’s fees and costs shall be set by the court following the filing of a memorandum of attorney’s fees and costs with notice to all parties and hearing.”
In layman’s terms, these are fees that are tacked onto an account after a final judgment and wages have been garnished. The purpose of the supplemental or post-judgment fees is to pay for additional work attorneys or law offices perform in pursuing a debt.
Court records show Medical Recovery Services has regularly sought supplement attorney fees in its court cases. After reviewing hundreds of collection cases in Bonneville County, we found several hundred where MRS fought for supplemental fees. We located only a handful of others from other collection agencies.
Attorney Bryan Smith, who pursues cases on behalf Medical Recovery Services, tells EastIdahoNews.com that requesting supplemental fees are necessary to discourage people with judgments against them from engaging in evasive behavior. But he says they are only used in post-discovery work.
“Awarding supplemental attorney’s fees against a judgment debtor for post-collection attempts to satisfy the judgment … encourage(s) judgment debtors to cooperate with paying the judgment rather than making it more difficult to collect the judgment,” Smith says.
In Siler’s case, MRS requested $843, which included $114 for the “receipt and processing” of Siler’s 12 $10 payments.
Siler did not file an objection to the request for supplemental attorney fees, but she did attend and speak at a hearing without a lawyer. She said MRS didn’t tell her any additional fees would be added to the account and maintained the debt was satisfied.
According to Crowley, Zollinger acknowledged that MRS staffers probably had not told Siler about any additional fees, but Zollinger said he had mentioned it during a debtor exam the previous year.
Crowley denied the request for supplemental fees.
Other judges deny request
Requests for supplemental or post-judgment fees are made by attorneys seeking to collect on debts. But they don’t get to decide on the actual amount awarded. A magistrate judge does that. Typically, judges award less than the amount requested by attorneys; however, EastIdahoNews.com found more than a few cases where attorneys did receive the full amount asked for.
In Siler’s case, the magistrate judge declined to award any fees. In his ruling, Crowley says MRS knew it was going to seek more fees, but concealed that fact, and the defendant based her decision to pay the full amount on the belief it was over.
“The defendant had been paying $10 per month, but having been told the pay-off amount, changed her position by paying off the balance of the judgment all at once,” Crowley says. “It would be unconscionable to permit the plaintiff to now claim additional sums are due having received the ‘pay-off’ sum of $1,224.88.”
MRS appealed the case, and a district court upheld the magistrate ruling.
MRS continued to appeal and in April 2017, the Idaho Supreme Court issued a ruling.
Supreme Court overrules; Medical Recover Services wins
In a decision penned by Chief Justice Roger Burdick, Idaho’s highest court affirmed that under Idaho Code 12-120 (5) supplemental fees are mandatory when requested. He also says that Siler did not file an objection to MRS’s request for post-judgment fees within 14 days.
He remanded the case back to the magistrate court with the reminder that the court has discretion on the amount of supplemental fees, but not on whether it is awarded.
Crowley eventually ruled supplemental fees of $250 to MRS. Combined with the costs of the appeal to the Supreme Court, Siler was ordered to pay $804.25.
Other Supreme Court cases
This was not the only time in recent years Medical Recovery Services fought all the way to the Idaho Supreme Court to collect on debt.
Since 2013, MRS has appeared before the state Supreme Court seven times, and the Idaho Court of Appeals once — more than any other Idaho medical debt collector. Of these cases, four are related to the collection of supplemental attorney fees and one to the collection of prejudgment attorney fees.
Of particular note are the following cases:
Medical Recovery Services v. Robert Lopez: The Lopez case involves a Lincoln County man who didn’t initially respond or show up in court and received a default judgment against him for $776.94 in principal, interest, and prejudgment fees. At first, the garnishment was unsuccessful, as Lopez was not working at the business where the writ was delivered. Eventually the new job was located, and the garnishment was satisfied.
As a result of the continued effort to find and garnish Lopez, MRS filed for supplemental attorney fees of $908. A magistrate judge denied the request, but the district court reversed that decision, because once requested, supplemental fees are mandatory by law. The case ended up in the Supreme Court, because the district declined to award even more attorney fees for its appeal. The court determined MRS was “attempting to collect attorney fees related to a previous attempt to collect attorney fees,” and that was supported not by the statute. Read about the case here.
Medical Recovery Services v. Mary Lou Merritt: A magistrate judge also tried to kill supplemental fees in this case. The medical bill was for $216.96. $109 was paid before a default judgment was made, which with interest left $125 owing. A judge issued a default judgment for $680.22. That’s the principal debt, prejudgment attorney fees and interest. It was paid in full.
Then MRS asked for $1,323.74 in supplemental fees. The judge denied the request saying, “There did not appear to be any reasonable efforts to work with the defendant, and this court feels the Medical Recovery Services has already been adequately and overpaid for their efforts. In totality, the case is absurd, unequitable (sic) and a bad example of collection work.”
MRS appealed, and the district court again reversed the magistrate ruling, because supplemental fees are mandatory. However, the district curtailed the time period for when MRS could ask for its fees. Following that, MRS again filed for supplemental fees of $3,343.90. The court denied that request, and on appeal to the Supreme Court was also denied. Read about the case here.
Things to remember when dealing with medical debt collection
One common thread in all the cases above is that things got much worse for the debtors as soon as a default judgment was filed against them. Judges may work to mitigate costs tacked on by bill collectors, but local experts say Idaho laws still favor creditors over debtors.
“The only potential to avoid attorney fees is to pay the account off before it goes to collections or before it’s filed as a lawsuit,” Farnsworth says. “It’s really not a great idea to ignore a lawsuit when you’re sued.”
Experts also stress that once you start getting bills, time is not on your side. A report by the Consumer Financial Protection Bureau states there is no standard for when medical providers can submit claims to the collection. A medical provider may wait a year or more to send a bill to collection or do it in 30 days.
Once in the hand of a collector, a debt can be sat on. It will accrue prejudgment interest while unanswered collection notices are mailed for months or even years. A lawsuit can then be filed, and the person is on a 21-day timeline to respond, or there will be attorney fees.
“People don’t recognize how serious a legal judgment is,” Satz says. “They don’t understand the civil legal system … and everything we’ve talked about here — it’s all legal.”
Satz says if things are going to change about how collection is handled in Idaho, it’s going to have to start with legislators.
And there have been some efforts in the past and most recent legislative session to do so. Read more about those efforts in the Idaho Statesman.
A conflict of interest?
There has also been some controversy in the Legislature involving Medical Recovery Services due to accusations that its attorneys, Zollinger and Smith, have a conflict of interest.
Zollinger serves in the Idaho House, and Smith is a vice chair in the Bonneville County Republican Party. Both are leaders in the charge against voter-approved Medicaid expansion in the state.
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Dr. Kenneth Krell, a critical care physician in Idaho Falls, admits this issue has become personal for him. He believes it’s a major conflict of interest to make a living off recovering medical bills while fighting a potential law that could give low-income Idahoans fewer medical bills.
After discovering his practice was using Medical Recovery Services for collections, he ended his relationship with the company.
He says he was also worried about how they dealt with his patients.
“I was concerned that they did not have the kind of approach to collections that I wanted my patients being subjected too,” Krell tells EastIdahoNews.com. “I suspect that a lot of doctors are not at all aware of how the collection processes works through their offices and thus are not aware of who they use.”
Smith, however, tells EastIdahoNews.com he does not believe Medicaid expansion will impact his business.
The debate played out recently in columns in the Post Register. Guest columnists Carrie Scheid and her husband, Jerry, assert insisted that Zollinger needed to declare a conflict of interest when discussing Medicaid issues and bills. The column is here. A rebuttal column from Smith is here.
What’s next?
In the last week, EastIdahoNews.com has received hundreds of messages, emails and phone calls regarding Medical Recovery Services and debt collection. Many people are worried that speaking publicly will result in a lawsuit, and doctors and attorneys, who asked to remain anonymous, have provided new leads that we are following.
There is no question that debts of any kind should be paid promptly to creditors. But the cases we’ve covered over the last week show many factors impact how people find out about debt and their ability to pay.
So talk to your doctors, your legislators and your debt collectors. And as always, tell us what you think by emailing news@eastidahonews.com.